LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session April 5, 1999 TO: Honorable J.E. "Buster" Brown, Chair, Senate Committee on Natural Resources FROM: John Keel, Director, Legislative Budget Board IN RE: SB 1731 by Brown, J. E. "Buster" (Relating to the period during which the School Land Board may reduce the royalty rate under certain oil and gas leases.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB1731, As Introduced: positive impact of $0 through the biennium * * ending August 31, 2001. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2000 $0 * * 2001 0 * * 2002 0 * * 2003 0 * * 2004 0 * **************************************************** All Funds, Five-Year Impact: ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) from * * Permanent School Fund * * 0044 * * 2000 $500,000 * * 2001 500,000 * * 2002 500,000 * * 2003 500,000 * * 2004 500,000 * ***************************************************** Fiscal Analysis The bill would allow the School Land Board (Board) to prescribe the length of time, beyond the current law scope (limited to a two-year time period with an option to extend relief every two years with board approval), that a qualifying well would be eligible for a reduced royalty rate. This would allow the Board to grant temporary royalty relief for state-owned oil and gas wells with marginal production levels as defined in statute. Methodology There are an estimated 2,900 marginal oil wells and 700 marginal gas wells on state-owned lands. Average daily production from the oil wells is 2.5 barrels while average gas well production is 46 mcf daily. The total value of production from these wells is $51 million each year of which the Permanent School Fund receives an annual royalty share of $5.16 million. General Land Office (GLO) mineral leasing staff estimate that approximately 10 percent of these marginal wells are plugged each year. The GLO staff also estimate that postponing abandonment of these wells could produce an additional $500,000 in revenue to the Permanent School Fund annually. Local Government Impact No significant fiscal implication to units of local government is anticipated. Source Agencies: LBB Staff: JK, DE, TT